Good day and welcome to the Sealy Corporation’s third quarter fiscal 2008 earnings conference call. (Operator Instructions) At this time I would like to turn the conference over to Mr. Kenneth Walker, Senior Vice President, General Counsel and Secretary of Sealy Corporation; please go ahead sir.

Good afternoon everyone. I want to thank you for joining us on Sealy’s financial third quarter 2008 investor conference call. Before we begin let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risk, uncertainties and other factors that may cause the actual performance of Sealy to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company’s Annual Report on Form 10-K for the year ending December 2, 2007. I’ll now turn the call over to Lawrence Rogers, President and Chief Executive Officer of Sealy Corporation.

Good afternoon and thank you, Kenneth. I want to also thank all of you for joining us on our call to discuss Sealy’s third quarter results. Joining me today are Jeffrey Ackerman, our Chief Financial Officer and Mark Boehmer, our Treasurer. On this call I will give an overview of the industry and our third quarter results as well as an update on the progress we are making on our strategic operating initiatives. Jeffrey will go into more detail on our third quarter financial results and then we will open the lines for your questions. Let me start by discussing the domestic bedding industry, retail mattress conditions continue to erode particularly at price points above $1,000. We do not believe industry’s trends have yet stabilized and US consumer sentiment continues to be weak which is taking a toll on the industry. As evidence of this, one of the country’s larger mattress retailers filed for bankruptcy in September and some smaller players are exiting the market as well. This not only illustrates the weak retail environment that many manufacturers are facing but also reinforces that we must monitor our retail relationships closely and look for ways to help them navigate through the current conditions. Globally manufacturers continue to face heightened cost inflation, particularly in steel and foam due to higher commodity costs, and tight supplies on feed stocks. In this environment we are focused on controlling the areas of our business that we can impact, consistent with what we have discussed on our prior calls including the Posturepedic line rollout which is now complete, continued product innovation, cost controls and effective working capital management. Now I’ll provide more detail on Sealy’s results, total sales for the quarter were $405 million, down 9.3%. Our domestic sales declined 11.6% as sales in the…

Thanks Lawrence, I’d now like to walk you through the financial details. For the third quarter, total net sales were $405 million, a decrease of 9.3% compared to the prior year. Net income was $10.9 million or $0.12 per diluted share, compared to $21.5 million or $0.22 per diluted share in the same period of 2007. Keep in mind that our third quarter 2007 net income included a $7 million or $0.07 per diluted share benefit from the reversal of certain tax reserves. I’ll now go into more detail on the components of our third quarter sales results. Total domestic net sales fell by 11.6% year-over-year to $296.1 million. Wholesale domestic net sales which excludes sales to third parties from our component plants were down 12.7% to $289 million as a 3.3% increase in average unit selling price, or AUSP, was offset by a 15.5% drop in unit volume. Third quarter 2008 AUSPs were favorably impacted by the price increases we implemented in December, 2007 and July, 2008. The positive mix up we have been experiencing with our new Posturepedic line and lower floor sample discounts related to the acceleration of our Posturepedic rollout into the second quarter. As Lawrence mentioned, industry demand has been deteriorating driven by continued pressures on consumer spending which has reduced traffic on retailers’ floors and contributed to the decline in our wholesale domestic unit volume. Despite challenges in the domestic mattress industry our new Posturepedic line is performing well, most notably above $1,000. Branded specialty bedding sales were down approximately 10% in the US as a 24% decline in units was offset by a 19% increase in AUSP. By product category, sales of our Smart Latex products were essentially flat in the third quarter while our branded visco sales declined approximately 17%. Internationally net…

(Operator Instructions) Your first question comes from the line of Chad Boland - Raymond James

Regarding gross margin, extraordinary impressive job even with a modest increase given the declines in volumes that we’re seeing right here, as we look out into the fourth quarter so just to summarize I guess we should expect a better benefit from the price increases as those have had more time to flow through, lower volume sequentially but at the same time more difficult raw material cost environment, so we should expect gross margin to be down sequentially in Q4, is that right?

First off in the fourth quarter we do expect gross profit margin to decline, and that’s consistent with our historical trends. However there are some additional factors impacting the fourth quarter. Based on the increases we saw in the cost of feeds stocks during the third quarter we will see increased raw material prices when the pricing mechanisms that I referenced, when those reset in the fourth quarter. Also wanted to just bring you back to another comment, on those material costs, at the end of the second quarter when we spoke last time about 90 days ago, we had expected an increase in material costs of 10% to 12% to occur by the end of this fiscal year. So sequentially a 10% to 12% increase in costs. That now looks to be about 14% to 15% based on those feed stock costs and indices that we saw during the third quarter. We’re going to work to try and mitigate the impact of these cost increases. We’re working with our suppliers to reduce costs and then we’re also developing more cost effective designs and wherever possible we’re trying to substitute some lower cost materials while improving the feel and quality of our products. The change in these costs have actually opened up some other opportunities for us that were not, up to this point, were not possible.

Given the pullback that we have seen at least in the spot prices of oil and scrap steel for instance, if we assume those prices stick around, maybe give or take 5% or 10% of the levels that they’re at right now, at what point given the contracts and price mechanisms that you have built in, at what point will we expect to see some moderation in those costs?

Well as I said, for us we have supply agreements that in many cases set on a quarterly basis and so those prices are based on indices averaging through the prior quarter. I also want to make people understand that this volatility that we’re seeing in for example oil, as you mentioned, that doesn’t always necessarily translate directly into a reduction in our costs. I hope that the price on oil and some of these commodities stays down. Its been extremely volatile but a big driver for us is the chemical costs and unfortunately we have not seen the chemical costs really abate at all and they are now still at all time highs and these are really [polyall] and [TDI] a couple of costs that we use in foam, and then similarly on steel prices, we’ve seen scrap steel prices decline quite a bit in the market. However what is probably more relevant for us is wire rod and the prices on wire rod have not really abated significantly. The wire rod our suppliers buy and change that into drawn wire. So these things like oil and natural gas and some of these commodities, they are absolutely a positive sign but trying to predict where we’re going to end the fourth quarter and what impact that will have going forward would just be speculative on my part.

How much left should we expect in Q4 for restructuring at least tied to the previously announced plant closure and would there be any called out expense or items related to the consolidation of the sales organization that you announced earlier this week?

We’re obviously going to continue to focus on all the cost reductions. The organization has now adopted a point of view that all expenditures regardless of where they are actually have to have a return on investment so we’re not going to get specific on this call, but we’ll stand on our record the last three quarters and believe me we’re serious about taking out any and all costs that’s not value added. So you should expect to see more progress as we report on our fourth quarter.

You’ll see in our Q that related to the Clarion plant closure, the company is expecting an additional $500,000 to $700,000 of expense related to that restructuring.

Your next question comes from the line of Albert Kabili – Goldman Sachs Albert Kabili – Goldman Sachs: On the earlier comments on the margin declines, when you’re talking about a decline in the fourth quarter are you referring to a sequential decline or a year-over-year decline?

I was referring to a sequential decline. Albert Kabili – Goldman Sachs: Any thoughts on year-over-year or maybe you can frame what kind of magnitude of sequential increase are we talking about in raw material costs?

The sequential increase that we’re looking at for material costs? Albert Kabili – Goldman Sachs: Correct.

As I mentioned we were expecting, from where we exited Q2 to see about a 10% to 12% increase by the end of the year. We were able to opportunistically make some buys in the third quarter that offset some of those material cost increases. So the material cost increases, that 14% to 15% that we’re now expecting by the end of the year versus where we exited Q2, that will be backend loaded into the fourth quarter. Albert Kabili – Goldman Sachs: And when you mean 14% to 15% you’re talking about a full year so that at the end of the year you’re talking about raw material costs for the full year being 14% to 15% higher or is that just a run rate in the fourth quarter?

That’s a sequential number so if you use the end of May, for example, as an index of 100 steel components that we’re purchasing or foam components, we’re saying that by the end of the year we would expect that index to be at 114 or 115. Albert Kabili – Goldman Sachs: I know you’re still in negotiations, on the debt covenants any color in terms of, is this something that given the difficult state of the credit markets something you want to, I would imagine not wait to the last minute on, any color as to what options you’re looking at? Is equity on the table at this point?

Our focus really here at Sealy is to make sure that we’re maintaining maximum financial flexibility for the company and as I mentioned we’re in an ongoing dialogue with our banks so we feel like we’re executing well on the new product line that we just implemented with Posturepedic so we’re going to stay focused on executing well on that and other launches to drive revenue. We’re going to stay focused on reducing our costs as we’ve done now in Q2 as well as Q3 and then the actions we’ve talked about for Q4. We’re going to just keep working against working capital and CapEx and all those things have put us in a position where we generated $65 million so far this year in operating cash flow. And it leaves us with a leverage ratio of 3.78. We’ve got plenty of smart people working on this and we I think have, because of where we are currently with our leverage ratio and the progress we’ve made I think we’ve got more options then maybe some others might have. But I can tell you when we’ve got a definitive course of action all laid out for that, that’s in the best interest of all our stakeholders, we’ll let you know what it is. Albert Kabili – Goldman Sachs: Is this something based on the trends you’re seeing in September do you feel you can make it through the fourth quarter and maintain that four to one leverage ratio?

Yes, I’m not going to comment just on where we are with the fourth quarter since as you know its not our policy to give specific guidance but I will tell you that Lawrence and I and the rest of the management team are extremely focused on maximizing the performance of the company and in parallel we’re having ongoing conversations with our banks and some other advisors. Albert Kabili – Goldman Sachs: On the receivables I know you mentioned that we’ve seen the days go up a bit, how are you thinking about managing the risk given the bankruptcies and potentially more that are out there in terms of retailers? How much left do you have to squeeze on the payables side and the length of your payables as well?

About receivables and I just want to clarify, our receivables balance and the day’s sales outstanding that we had at the end of the quarter domestically was essentially flat to Q2 and to prior year so we haven’t really seen any deterioration in receivables. And we will continue to aggressively manage that. We have a great collections group and that group is working hand in hand with the sales organization so that we can really have an early warning and then work with our retail partners to make them successful and that’s our first and foremost focus is making sure that they’re successful. On the payable side, we have a great relationship with our suppliers and we’re just going to continue the progress that we made in the second quarter and continue it in the third quarter.

Your next question comes from the line of Analyst

Wanted to just talk about the overall environment a little bit, obviously its weak but when you’re talking to your retailers how much, do you get a sense of how much this is driven by the demand side of the equation versus consumers who are unable to perhaps get credit as freely as they used to be?

I would say that clearly our retailers are certainly feeling the effects of the headwinds in consumer spending although on the plus side, the ones that are advertising; specifically the ones that are getting behind the better six messaging are performing somewhat better then those that are not. We’re pretty focused on making sure that our retailers are as successful as possible and we’re attempting to provide them with strong new innovative product as we’ve done with Posturepedic and the PurEmbrace Smart Latex lines. We’re also investing in advertising support to help drive the customer into their stores. So is the business climate difficult? Yes. Are there some things you can do to assist? Yes, and we’re doing everything we can.

But you’re not hearing that some of the larger retailers are not being able to offer credit terms to their customers.

There’s been some tightening of credit clearly but the ones that are large, they’ll have access to credit and are still performing.

In terms of the market share that you talked about that you’re starting to regain above $1,000, was that in the quarter or as the quarter progressed--?

The market share that we are addressing is relative to Posturepedic and its been successful across all price points but as we mentioned the success below $1,000 was helped by our price increase and the fact it took hold around the 21st of July, while the success above $1,000 is really where we’re showing some gain as compared to the previous line and that’s starting to move the market share needle for us in the above $1,000 price band.

It sounds like Stearns & Foster is still maybe the weak link.

Yes, we have people focused on Stearns & Foster, it has had an impact on our business but we feel good about where we’re going and some of the early things that we have seen from the development team tells us it’s going to be an opportunity going forward, so we’re excited about that.

Is it too early to ask about a re-launch next year and how that might sequence?

You’ll hear more about it but typically we re-launch products every two years so that would put it on target for a spring launch of 2009.

If you could comment about the specialty business, how the Macy’s program is going and if given that you’ve decided to give up air beds if you’re still committed to visco.

Certainly the PurEmbrace at Macy’s the latex line is really only been out there a few months. We saw a significant uptick in the line with the Labor Day advertising so we feel good about that. In fact, we are starting the further rollout of the line in the latter part or early part of 2009 to some of our other retailers. So we feel good about PurEmbrace latex, the air bed category, that was a business that we looked at and we felt that it was important based on the requests from our retailers that we get into the business. We designed the air bed, albeit we didn’t manufacture it. We had it manufactured by a third party so we had little or no capital investment on our part. And after testing the product for what we felt was a reasonable period of time, we’ve concluded that there’s a better return on our investment in other areas so we’re getting in behind the latex line and we’re going to continue to pick up your third question, we will continue to actively support and promote visco products as well.

I also saw something about a new heating and cooling product that you’ve aligned with, is that a 2009 initiative or just sort of on the radar for longer term?

That’s part of our innovation; we’re pretty focused on bringing exciting new innovations to our retail community not unlike what we’ve done with our no tossing and turning pressure relief Posturepedic program. So we’re going to continue to work hard on bringing innovative sought-after products to the retailer and to their customers. So that is something that you will likely hear more about on future calls.

In the last quarter there were some warranty changes to your warranty program or estimates that benefited, would those have been material in this quarter?

No, there were no adjustments really to warranty reserves or accommodation reserves. It was just a change in methodology.

The contracts that you have, would you say that those are in terms of when they reset, are they fairly standard or did you have an advantage versus your competitors on costs during the quarter?

We absolutely leverage our purchasing power and just our scale with our suppliers so we are definitely getting the best prices available on the products that we’re buying.

More from a timing aspect, do you think that you would have had an advantage versus competitors?

I think if the 90 day or kind of one quarter lag and it varies really by commodity but I’ll use that as an example, in a period of increasing costs, we clearly have an advantage because we’ll have a delayed impact from those, however the flip side of that is in an environment where costs are declining we’ll see a delayed benefit.

Your next question comes from the line of Karru Martinson - Deutsche Bank

With the 53rd week of sales the EBITDA impact that we’re looking at is $3 to $4 million, is that kind of how I should be looking at that?

Yes, the high end of that.

In terms of the covenants, is your mindset here as you said, to do this sooner rather then later, regardless of whether or not you think you’re going to hit the numbers this quarter but looking forward you’re now going to continue at a four times, this is the prudent thing for you to do?

We’re going to continue to stay focused on just maintaining that flexibility so as I said we’re focused on driving the things we can with the team that we have here and we’re in ongoing discussions with our banks.

Your next question comes from the line of Mark Rupe – Longbow Research Mark Rupe – Longbow Research: As it relates to how you ended up the quarter in early September have you seen any differences in the volume change in whether it be from a price segmentation or a product type segmentation relative to the beginning of the quarter?

Certainly as you would expect with all the news that we’ve recently seen with the banks and the credit markets it’s had an effect on the consumer. Consumer is very fragile right now so we have seen a slowdown since the Labor Day holiday advertising so yes, as you anticipated with your question; we saw September slowdown with all the news on Wall Street. Mark Rupe – Longbow Research: Was that considered across the board or is that more high end and more specialty versus inner spring or is that just across the board?

I would say that the upper end has probably been more impacted then has the lower end but there has been a general decrease in retailer foot traffic.

Your next question comes from the line of Joel Harvard – Hillard Lyons Joel Harvard – Hillard Lyons: Are you getting much by way of request or such from your retail partners on banking them a little more aggressively then you have in the past and particularly beyond the scope of your usual historical level of co op? You had talked about rationalizing and refining the advertising co op disciplines, where are you on that track?

We believe what’s best for our customer and best for us right now is to continue to provide them with great product and we’ve done that with Posturepedic and we’re doing that with PurEmbrace Smart Latex and we’re going to continue to support them. We have laid down this national advertising program on Posturepedic and no toss and turn pressure relief. They have found that if they hitchhike on that message, they’re current cooperative spend is working harder for them. So we have by taking those kinds of ideas and making those kinds of investments in the market, found that that’s the answer that they’re looking for. Indeed when you look out there today, there’s not a lot of national advertising running in our segment. So that’s been welcomed by them and it seems to be a terrific opportunity that they’ve jumped on. Joel Harvard – Hillard Lyons: Was over the past few quarters, you talked about taking a more disciplined approach with your retailers, in other words, they need to play ball with Sealy or there will be consequences. Are you implementing some of that? Did the message get across without really having to wrap knuckles?

No we haven’t taken any kind of retaliatory action towards anyone. In fact we have terrific relationships with our retailers and so there’s been no reduction in the levels of cooperative support that we offer our people and in fact if you looked at it in a way, we’ve made increased investments albeit in national brand advertising to improve the relevance of our Posturepedic message and so our relationship is one of a partner with our customers.

The real benefit there in the way we get the biggest bang for our co op dollars is we need to provide them with great products and then secondarily providing a national advertising campaign that they can leverage gives them also a bigger bang for their spend on advertising so that’s what we’re doing to really improve the effectiveness of our co op spending.

Your next question comes from the line of Keith Hughes - SunTrust Robinson Humphrey

How much national advertising are you budgeted to do in the new fiscal year and you mentioned a reduction in co op spending across the board, is there any way you can quantify that?

Certainly we don’t disclose for competitive reasons the amount of advertising spend in that area but in the more recent national advertising program we have budgeted and purchased what would amount to one billion consumer impressions across TV, print and internet and so that is a substantial amount of national advertising.

I want to make sure that everybody understands, co op is a variable expense so in the past we’ve talked about reductions in co op, but that’s been driven by the fact that we’ve had lower volumes so really on a rate basis we’re not really seeing a difference in our co op spend.

On Stearns & Foster I’m going to assume that the business at Stearns & Foster, the percentage decline is greater then what I’ve seen from the corporate average, is that correct?

Well certainly the Stearns & Foster, we don’t break out the performance of Stearns & Foster separately but we have seen, we’ve been unhappy with the performance of Stearns & Foster. We’ve been honest and forthright about that on all of our calls and for that reason we have a very talented team working almost around the clock redesigning this product and we will have it ready for the spring market in Las Vegas and so it’s not unlike the Posturepedic program that we just recently launched. We felt we had a distance to go in Posturepedic. We did a lot of consumer research. We identified the issues. We fixed them. We built in some terrific innovation and we’re going to do the same thing with Stearns & Foster.

So July, 2009 Vegas show.

No, it’s going to be spring in Las Vegas so it’s around the corner.

Your next question comes from the line of John Baugh – Stifel Nicolaus John Baugh – Stifel Nicolaus : On Europe is that decline due to the loss of position or an account or is that just general weakness that you’re seeing in Europe and then I want to make sure I’ve got the sales comparison right for the Q4 effectively to take out $32 million from the year ago to get a comparative. So if you were down say 105 from that, give or take you’d be down about $370 million sales area, is that correct?

Relative to Europe, the European situation is really got a lot to do with the weakening economic conditions particularly as you have reported recently in the paper the, our sales were impacted in Europe primarily by one of our largest OEM customers that drew down their inventory in order to prepare for the launch of their new product which we are very heavy suppliers of. So it was kind of in the hand off at that moment. Given this, I would also tell you we’re focusing on implementing similar cost reduction initiatives as we’ve done in our US business to ensure that we have all of our businesses better aligned from an expense to current sales trend. Europe is a focus. We’re working on it, it’s very top of mind and you’ll hear more about it when we report the fourth quarter.

In the fourth quarter of last year, we had an incremental $32.3 million due to the extra week in our fiscal year and I’m not going to comment on projections or specific guidance for the fourth quarter. John Baugh – Stifel Nicolaus : Do the covenants change beyond the end of this fiscal year or do they stay at 4.0 going forward?

They stay at 4.0.

Your final question comes from the line of Reza Vahabzdeh – Barclay’s Capital Reza Vahabzdeh – Barclay’s Capital: I wanted to follow-up on September trends, volume trends domestically were somewhat similar in the second quarter and third quarter, while AUSP improved somewhat, I think you mentioned that September was somewhat weaker. Should we take that to mean down 20% volume, still up low single-digit AUSP?

We don’t give specific guidance on that. I’ll just reiterate what we’ve said is that we saw the consumer environment continue to deteriorate. Reza Vahabzdeh – Barclay’s Capital: Could you maybe say if it was mix or volume and mix?

I think Lawrence already talked to, what’s happening from the mix. It’s a general weakness across all price points with all the events taking place on Wall Street and just all the news of the economic and environments, credit environments getting, we’ve just seen a slowdown in traffic and the high end has been particularly hard hit. Reza Vahabzdeh – Barclay’s Capital: You mentioned one larger customer’s bankruptcy filing, how do you feel about your other say top 20 accounts?

Certainly it’s been a tough environment out there. But we’re working very actively with all our customers. We have a very close relationship with them. The customer that was referred to earlier was one that we had made a decision to discontinue doing business with early this year. I think that that’s a testament to the fact that we’re watching our customer base very carefully. We have the courage to step up to these things if we think there’s uncertainly relative to risk and reward. So we’re going to continue to guide ourselves with that kind of a practice and our senior sales people by ritual, sit down every Friday and go through every account with our senior people in receivables so we have a very active watch list if you will, and we’re staying on top of our business.

As I said before the best guarantee on all that is to make our customers successful so whether it’s making sure that the products that we have that they’re getting out there, that we’re having effective training, that we have good promotions, we’re working with them to make them a success to avoid those problems. Reza Vahabzdeh – Barclay’s Capital: Have you had to terminate any other relationships in that same way?

Not any one of that size. There’s been a number of smaller people and to be candid with you, if they reach their credit limit, we just go on a do not ship. Reza Vahabzdeh – Barclay’s Capital: In terms of your bank covenants, the way you calculate EBITDA, is that 198 or--?

The LTM period is 198.4.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Thank you, in closing I’d like to tell everyone we really appreciate the continued interest you have and that you are showing in Sealy. While the short-term will be challenging, Jeffrey and I and the team, we’re confident that our actions will enhance Sealy’s future. With our progress in fixed cost reductions, our improved product portfolio, and the solid leadership the team’s providing, we believe that the company will have an even stronger earnings profile when the industry emerges from what we’re finding to be a difficult period. So thank you for your time and we look forward to updating you on our progress during the next call. Thank you.